European stocks rebound from Ukraine-led selloff

Ashtead and Glencore Xstrata advance after reporting earnings

LONDON (MarketWatch) — European stock markets partly rebounded after a sharp prior-day selloff on Tuesday after tensions between Russia and Ukraine appeared to ease as Russian troops reportedly were called back to their bases and President Vladimir Putin stressed he wouldn’t use military force yet.

The Stoxx Europe 600 index
SXXP, +0.03%
rallied 2.1% to close at 337.15, partly recovering from a 2.3% slide on Monday.

How Ukraine and Russia arrived at the brink

(1:19)

Russia has taken advantage of the new, weak government in Kiev by swiftly moving its troops into the Ukrainian province of Crimea.

The sharp decline on Monday came after the crisis in Ukraine intensified over the weekend, as Russian President Vladimir Putin got parliamentary approval to launch a military intervention on the country’s southwestern neighbor.

The move was condemned by western powers and U.S. President Barack Obama warned Russia could face costly sanctions unless it ends its occupation of Ukraine’s Crimean region. On a visit to Kiev on Tuesday, U.S. Secretary of State John Kerry called the Russian moves in Crimea an “invasion” and urged Russia to talk to the Ukrainian government. Additionally, president of the European Council, Herman Van Rompuy, has scheduled an extraordinary meeting for EU leaders on Thursday to discuss the situation in the country.

Tensions appeared to ease on Tuesday, however, after Russian troops sent on surprise military exercises in western and central Russia reportedly were ordered to return to their bases. The drills began last Wednesday, and some of them were near the Ukraine border, which triggered some concerns that Russia was building up for a massive incursion.

Peter Garnry, head of equity strategy at Saxo Bank, said in a note that political and economic risks shouldn’t deter investors from moving into Russian equities and that the country’s stocks are looking “ridiculously cheap” at the moment.

“This song [of staying out of Russian equities] has been playing out for years now and while there is some truth to that, equities can become so cheap that you have to act despite a crisis and negative news headlines,” he said.

Garnry pointed to two reasons for buying instead of selling. First, a war in Ukraine is likely to become too expensive for the parties involved and a diplomatic solution can therefore be expected. And second, Russia has a positive economic outlook with estimates for real GDP growth of 2% and 2.5% in 2014 and 2015 respectively. The best way to gain exposure to the “oversold” Russian equities is through the db x-trackers MSCI Russia Capped Index UCITS ETF
XMRC, -0.65%
rather than by selecting individual stocks, he said.

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